- About 14% of wallets showed behavior consistent with coordinated wash trading.
- Artificial trading peaked at 60% in December 2023 and fell to 5% in May.
- ICE plans to invest up to $2 billion as Polymarket prepares for a regulated U.S. return.
A new study conducted by researchers at Columbia University found that nearly a quarter of all trading on Polymarket, one of the world’s leading decentralized prediction platforms, was artificially inflated by wash trading over the past three years.
Using blockchain analysis, the researchers traced millions of transactions on the Polygon network and discovered widespread self-dealing patterns that overstated the platform’s apparent market depth and liquidity.
The findings challenge the perceived transparency of blockchain-based prediction markets and raise broader questions about how decentralized finance can preserve market integrity without traditional oversight mechanisms.
Algorithmic analysis exposes trading manipulation
The research team examined millions of wallet transactions recorded on the Polygon blockchain, where all Polymarket activity is publicly verifiable.
By designing algorithms to detect repetitive and circular trading patterns, they identified that roughly 14% of the platform’s 1.26 million wallets displayed behavior consistent with wash trading.
These accounts repeatedly traded with one another but seldom interacted with the broader market, indicating self-dealing activity rather than genuine speculation.
According to the study, wash trading accounted for an average of 25% of Polymarket’s total transactions since 2021.
The frequency of this artificial activity varied over time, peaking at 60% in December 2023 before falling to about 5% in May, and then rising again to roughly 20% by October.
The results illustrate how easily decentralized markets can be manipulated when transaction costs are low and identities are pseudonymous.
The authors — including Columbia Business School professors Yash Kanoria and Hongyao Ma, Barnard College economist Rajiv Sethi, and doctoral student Allen Sirolly — emphasized that their estimates are not definitive.
Still, the data suggest a consistent pattern that raises concerns about how well on-chain markets reflect real sentiment and liquidity.
Token speculation may have driven artificial activity
Although the study did not accuse Polymarket itself of direct involvement, it identified structural features that make wash trading feasible.
The exchange charges no transaction fees, supports self-custodied crypto wallets, and settles in stablecoins, enabling traders to manage multiple pseudonymous accounts without significant cost.
The researchers also tied several spikes in artificial volume to rumors of a potential Polymarket token launch.
In decentralized finance, such speculation can motivate traders to inflate activity in hopes of qualifying for “airdrop” rewards when a new token is released.
In early October, Polymarket founder Shayne Coplan posted on social media hinting at a possible token, coinciding with one of the pronounced increases in wash trading activity.
Sirolly noted that genuine trading volumes tend to rise around real-world events, such as election polls or sporting outcomes, whereas wash trading spikes align more closely with token-related rumors.
This pattern suggests some users traded primarily to improve eligibility for potential reward distributions, not to act on market information.
Regulatory context and industry competition
Founded in 2020, Polymarket has become one of the most active blockchain-based prediction platforms, allowing users to bet on political, financial, and cultural outcomes.
Its closest competitor, Kalshi Inc., operates under U.S. regulation but does not use a blockchain, which limits external visibility into its data.
The timing of the report is notable. In 2022, Polymarket reached a $1.4 million settlement with the Commodity Futures Trading Commission (CFTC) for operating an unregistered exchange and subsequently barred U.S. users.
Despite regulatory pressure, Polymarket continues to attract institutional interest.
Intercontinental Exchange Inc. (ICE), owner of the New York Stock Exchange, recently signaled plans to invest up to $2 billion in the company, underscoring growing mainstream financial interest in blockchain prediction markets.